Yeah that's right. In practice though, over time you'd expect most people to eventually congregate on 1-2 big communities where there is the most quality content and moderation.

The upside is that no single server or moderator(s) own any community. Like on Reddit there can only be one r/NFL so if the mods decide to do something unpopular with the subreddit then everyone is just stuck with that.

Here someone can just create a new NFL community on a different server or start their own server with their own mod policies.

Really it's not too different from how things were with reddit though. Often subreddits would fracture and people create a new subreddits dedicated to the same topic. There are a lot of very similar subreddits that for the same topic that co-exist

Think about how r/FreeFolk split from r/GameOfThrones because people got pissed at the moderators and then later it ended up becoming more popular than the initial subreddit